PE Week Wire — Friday, May 13

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Friday Feedback

The sun is shining, the Henry Hudson Parkway is collapsing, and I’m thankfully returning to Boston later today (haven’t been there in over a week). In other words, it’s time for Friday Feedback. This week’s edition will focus on Monday’s column about the definition of private equity, which really was just an introduction as to why I felt that Integro Ltd. had topped Vonage as the year’s largest venture capital deal:

B writes: “Your definition of buyouts vs. venture capital is flawed. Buyout firms ‘buy out’ portions of companies all the time that represent less than 50% ownership. And likewise, venture capital firms often take control positions in companies. The real difference lies in the stage of life of the target company. Buyout investors invest in mature, cash flowing businesses. It is much less speculative investing. Venture capital firms invest in earlier stage companies, that are still developing and may or may not be cash flowing. These investments, generally, are riskier.”

Tim likes my general premise, but thinks it needs to be expanded: “Your definitions are as good as any, and cover far and away most of the money. However, I would add a category of ‘other’ that would include the much smaller areas of: (1) Mezzanine funding: which usually has warrants or other equity features; (2) Secondary sales: which are technically of LP interests, and therefore a separate type of PE transaction; (3) Growth capital: non-control, equity-based financing of established companies. In deference to the managers who recoil at the moniker ‘venture capitalist’ because of a later stage and non-technology oriented strategy, but who also rarely invest in control positions.”

Then there is Craig, who wrote a long – albeit interesting – treatise, which he sums up with: “So I’ve defined Private Equity as: The professional investment of capital seeking gains from the purchase and sale of securities that are highly illiquid and generally not publicly traded. The practice can be divided into two basic categories. The first is Venture Capital which seeks opportunities where the minimum size of the opportunity is well understood but the maximum size the opportunity is highly uncertain and the investment managers endorse existing management’s business plan which they influence but don’t control. The second is Control Capital which seeks opportunities where both the minimum and maximum size of the opportunity are well understood and the investment managers are playing an active role in controlling the business plan of the underlying company to realize the opportunity.”

    Top Three


Tranzyme Pharma Inc., a Research Triangle Park, N.C.-based drug company focused on gastrointestinal disorders, has raised $32 million in additional Series A funding. H.I.G. Ventures, Thomas McNerney & Partners and Quaker BioVentures co-led the deal, with return backers including BDC Venture Capital, Desjardins Venture Capital, Pacific Rim Ventures and The Solidarity Fund. As part of the round, $6 million in previously-issued notes have been converted into equity

Cephalon Inc. (Nasdaq: CEPH) has agreed to acquire Salmedix Inc., a San Diego drug company focused on oncology. The entire transaction is valued at $160 million in cash, plus the possibility of an additional $40 million in milestone payments. Salmedix has raised over $82 million in total VC funding since its inception, including a $45 million Series C deal in 2004 at a post-money valuation of approximately $98 million. Shareholders include InterWest Partners, Versant Ventures, Delphi Ventures, H.I.G. Ventures, OrbiMed Advisors, CMEA Ventures, ProQuest Investments and Aberdare Ventures. In related news, Salmedix has withdrawn registration for a proposed $86.25 million IPO.

Trimas Corp., a Bloomfield Hills, Mich.-based manufacturer of engineered products, has withdrawn registration for its proposed $230 million IPO. The company originally filed in March 2004, and Goldman Sachs and Merrill Lynch were slated to serve as underwriters. TriMas operated as an independent company beginning in 1987, but was acquired in 1998 by Metaldyne Corp. (then known as MascoTech Inc.). In November 2000, Matladyne was acquired by an investor group led by Heartland Industrial Partners, which later spun the company out on its own.

    VC Deals

Five9 Inc., a Pleasanton, Calif.-based provider of hosted contact center solutions, has raised $12 million in Series B funding. Partech International led the round, and was joined by return backers Hummer Winblad Venture Partners and Mosaic Venture Partners. Five9 has raised $17 million in total VC funding since its 2001 inception.

ITM Software Inc., a Mountain View, Calif.-based provider of enterprise software for business management of IT organizations, has raised $6 million in additional Series B funding. RBC Technology Partners led the deal, and was joined by return backers Technology Partners, InnoCal Venture Capital and Ascend Venture Group.

Agile Systems Inc., an Ontario, Canada-based provider of motor control and power conversion technologies, has raised Cdn$7 million in venture funding. Expansion Capital Partners led the deal, and was joined by RBC Capital Partners, Covington Capital, RoyNat Capital and BEST Total Return Fund.

Nellymoser Inc., an Arlington, Mass.-based developer of revenue-generating mobile applications for large brands and content providers, has raised $5.3 million in a Series A funding round led by Softbank Capital.

Pharmaca Integrative Pharmacy Inc., a Boulder, Colo.-based pharmacy operator, has raised $7.5 million in Series D funding that includes return backer Great Spirit Ventures.

Cymphonix Inc., a Salt Lake City-based developer of appliances for network traffic control and visibility, has raised $4 million in Series A funding. VSpring Capital led the deal, and was joined by Prospector Equity Capital.

Assay Designs Inc., an Ann Arbor, Mich.-based maker of immunoassay kits, has raised $5 million in Series A funding from Ampersand Ventures.

    Buyout Deals

PAI Partners has received European Commission approval to purchase Italian clothing retailer Gruppo Coin SpA. The deal is valued at approximately $463 million.

CSFB is expected first-round bids today for the B2B publishing unit of KKR-controlled Primedia Inc. (NYSE: PRM), according to The New York Post. The unit could generate bids upwards of $450 million.

Linsalata Capital Partners has agreed to sell Eagle Window & Door Inc. to Anderson Corp. No financial terms were disclosed for the deal, which is expected to close in May. Eagle Window & Door is a Dubuque, Iowa-based manufacturer of aluminum-clad wood windows and doors for high-end residential and commercial construction. It was acquired by Linsalata in 2002.

EQT Partners has acquired Brandtex Group AS, a family-owned Danish clothing company. No financial terms were disclosed.

    PE-Backed IPOs

Wexford Shipping Co., a Greenwich, Conn.-based dry bulk carrier, has filed to raise $100 million via an IPO of common stock. Jefferies & Co. is serving as sole underwriter. Wexford Capital is the issuer’s primary equity sponsor.

    PE-Backed M&A

Aetna (NYSE: AET) has agreed to acquire ActiveHealth Management, a New York-based health management and healthcare data analytics company. The deal is valued at approximately $400 million and is expected to close sometime this quarter. ActiveHealth has raised nearly $75 million in VC funding from Psilos Group, Constellation Ventures and Merrill Lynch Capital Partners. This includes a 2000 deal at a post-money valuation of $140 million, and a 2001 post-money valuation of approximately $50 million.

    Firm & Fund News

The Oregon Inv*stment Fund (OIF), a $105 million state program developed in 2004 to produce returns for Oregon pensioners and encourage capital commitment to small business growth in Oregon, has committed a total of $34 million to four private equity funds: Buerk Dale Victor, Cascadia Partners, Evergreen Pacific Partners and Riverlake Partners. Credit Suisse First Boston serves as manager of OIF.

YaleUniversity is a limited partner in IDG Ventures Boston’s $180 million second fund (IDG Ventures Atlantic II), according to a regulatory filing.

3TS Venture Partners, a Budapest-based private equity firm, has been renamed 3TS Capital Partners Ltd. In other firm news, Dow Jones is reporting that it has closed its second fund with 100 million euros.

The Carlyle Group has abandoned plans to raise a $300 million fund focused on Russia, according to The Financial Times.

    Human Resources

Justin Maccarone has joined Allied Capital as a managing director in charge of the firm’s New York-based I-banking business. He was a founding partner of private equity group UBS Capital Americas. In other Allied Capital news, the firm also has added Adam Saltzman as a principal in Los Angeles. Saltzman previously served as a principal with North Castle Partners.

Robert Fines has joined Kirtland Capital Partners as an operating partner. He previously served as vice president and general manager of Avery Dennison Corp.‘s (NYSE: AVY) Fasson Roll North America division.


Random Ramblings…

A few quick notes and links as I head into the final day of donuts, projectors and mental drudgery (a.k.a. meetings):

*** If I’m a general partner in a buyout fund consortium that received a $75 million management agreement termination fee, do I care that the IPO was a dog? Is this amplified if my limited partnership agreements don’t really provide much – if any – fee-sharing with my limited partners? Do I go home and laugh about how clever I was to sign a 10-year agreement with a company that I always knew would be held private for less than a single year? I don’t know either. Maybe it’s time to ask some of the folks behind Warner Music.

*** IDG Ventures Boston just closed its new fund, so general partner Jeff Bussgang is picking up market trend tips during Microsoft’s annual VC conference in Mountain View, Calif. Most interesting note is Jeff’s acquiescence to the notion that the enterprise software model is nearing death from a VC ROI perspective. He also promises an update if Steve Ballmer says anything of interest during this morning’s keynote.

*** Speaking of keynotes, don’t miss former Mass. House Speaker Tom Finneran (current head of the Mass Biotech Council) at our Alternative Funding Sources for Life Science Companies event in Boston on the morning of May 19. Not only will you get lots of info and insight, but we also promise all of the coffee you can drink.

*** Can you name the private equity-involved law firm that already has lost a few of the junior attorneys it grabbed from Testa Hurwitz?

*** The Tribeca Grand is a fantastic hotel. I just felt that it had to be said.

*** Omnipresent financial columnist, blogger and academic Paul Kedrosky agrees that the $300 million deal for insurance startup Integro Ltd. is, indeed, a venture capital deal. In reference to my Monday note, Kedrosky writes: “He is right, of course, and that vague sense of discomfort you feel as you search for reasons to disqualify Integro (an insurance company!) is tech-centric venture bigotry.”

    Top Three


Anacor Pharmaceuticals Inc., a Palo Alto, Calif.-based drug company focused on dermatology, has raised $25 million in Series C funding. Care Capital and Venrock Associates co-led the deal, and were joined by Red Abbey Venture Partners, unnamed individuals and return backers Aberdare Ventures and Rho Ventures.

Thomas Middelhoff has resigned as head of European private equity for Investcorp, in order to become CEO of German department store operator Karstadt Quelle AG. Middelhoff had been CEO of Bertelsmann AG until the middle of 2003.

ABS Capital Partners, a Baltimore-based private equity firm focused on mid-to-later-stage growth companies, is looking to raise $500 million for its fifth fund.

    VC Deals

Spherics Inc., a Lincoln, R.I.-based drug company, has raised $26.4 million in Series C funding. Advent International led the deal, and was joined by fellow new backers MVM Life Sciences, Oakwood Medical Investors, AM Pappas, Mitsubishi and Vectis Life Sciences Fund. Existing shareholders Zero Stage Capital, CB Health Ventures, POD Holding and Eastman Ventures also participated.

Klocwork Inc., a Burlington, Mass.-based provider of automated software solutions for improving software security and quality, has raised $10 million in Series C funding. Mobius Venture Capital led the deal, and was joined by return backers Pequot Ventures, U.S. Venture Partners and Cisco Systems.

Centric Software Inc., a San Jose, Calif.-based provider of product lifecycle management solutions for extended enterprises, has raised $10 million in additional venture capital funding. The new money is part of a Series A round that now stands at approximately $33.5 million, while the company previously had raised over $44 million, including a $30 million Series D infusion in 2000. Oak Inv*stment Partners led the latest tranche, and was joined by Masthead Venture Partners, Boston Capital Ventures and BancBoston Ventures.

Duck Creek Technologies Inc., a Bolivar, Mo.-based provider of rating and policy administration software for the insurance industry, has raised $7 million in Series A funding led by Pequot Ventures.

Ambit Biosciences Corp., a San Diego-based drug company, has raised $10 million in additional Series C funding, bringing the round total to $31 million. The initial $21 million close came last August. Roche Venture Fund led the latest tranche, with Roche also entering into a collaborative agreement related to Ambit’s kinase profiling technology. Other new backers included Canadian Medical Discoveries Fund Inc. (advised by MDS Capital Corp.) and Genechem, while return backers included Perseus-Soros Biopharmaceutical Fund, Forward Ventures, GIMV and Avalon Ventures.

BioPheresis Technologies Inc., an Apex, N.C.-based medical device company focused on cancer therapy, has raised 6.5 million euros in Series A funding from Scandinavian Life Science Ventures and First Ventury of Germany.

AC Immune, a Switzerland-based biotech company focused on Alzheimer’s Disease, has raised CHF 21 million ($17.27 million) in Series B funding from unnamed backers.

    Buyout Deals

Whitney & Co. and Clearview Capital have sold portfolio companies Compression Polymers Corp. and Vycom Corp. to AEA Inv*stors and company management. No financial terms were disclosed. Compression Polymers Corp. and Vycom Corp. operate under the Compression Polymers Holdings LLC umbrella, and are Moosic, Pa.-based manufacturers of engineered extruded plastic sheet products used primarily as replacements for wood and metal. Kirkland & Ellis LLP represented Whitney and Clearview on the transaction.

Neff Corp. (OTC: NFFCA) shareholders have approved the proposed acquisition of the company by Odyssey Inv*stment Partners. The deal is valued at $510 million, including an equity value for Neff of $240.5 million. Neff is a Miami, Fla.-based construction and industrial equipment rental company.

FdG Associates, a New York-based, middle-market private equity firm, has acquired The Hercules Tires & Rubber Co., a Findlay, Ohio-based marketer and distributor of private label and branded tires, in partnership with Hercules’ senior management team. No financial terms were disclosed.

    PE-Backed IPOs

RBC Bearings Inc., an Oxford, Conn.-based maker and marketer of plain, roller and ball bearings, has filed to raise $143.75 million via an IPO of common stock. Merrill Lynch & Co. is serving as lead book manager. RBC Bearings lists Whitney & Co. as its primary equity backer.

    PE-Backed M&A

Xanodyne Pharmaceuticals Inc., a Florence, Ky.-based drug company, has agreed to acquire the pharmaceutical assets of AaiPharma Inc., which this week filed for voluntary Chapter 11 bankruptcy protection. The deal is valued at $170 million. Xanodyne has raised approximately $40 million in total VC funding since its 2001 inception, from firms like Essex woodlands Health Ventures, Blue Chip Venture Co. and HealthCare Ventures. Late last year, it acquired drug company PX Pharmaceuticals Inc.

    Firm & Fund News

ATP Private Equity Partners, a Copenhagen-based fund-of-funds manager, has closed its second fund with 1 billion euros of committed capital. It will build a portfolio of VC, buyout and secondary fund positions in both North America and Europe, and also will do some co-inv*sting. The firm’s first fund most recently made commitments to offerings from Roark Capital Partners, Celtic House Venture Partners and American Securities.

Sovereign Capital, a UK-based private equity firm focused on the middle market, has closed its second fund with Gbp275 million. Limited partners included Access Capital Partners, Danske Private Equity, Nordea Inv*stment Management, Robeco Private Equity and Wilshire Associates Europe.

    Human Resources

Jianhui Zhou has joined ComVentures as an entrepreneur-in-residence. He most recently served as vice president and general manager of Ciena Corp.‘s China operation.

Ivor “Ike” Evans has joined Thayer Capital Partners as an operating partner, focused on the industrial manufacturing, logistics and automotive industries. He recently retired as vice chairman and director of Union Pacific Corp., which he had joined in 1998 as president and chief operating officer.

Questor Management Co., a Southfield, Mich.-based private equity firm focused on turnarounds, has made the following promotions: Dean Anderson, Rob Denious and Dominick Shiano to managing director; Kevin Prokop to director; and Andrew Wiegan to associate.


A Tale of Two Firms

Two months ago, San Francisco-based Venture Strategy Partners closed its third fund with $185 million, and re-branded itself with the snappier moniker of VSP Capital. At around the same time, IDG Ventures Boston was rumored to be taking a bit too long in closing the first-ever IDG-affiliate fund to include outside institutions. My, how fortunes have changed.

According to PE Week‘s Constance Loizos, VSP Capital has lost two of its five general partners, and at least one LP in the new fund is considering a sale of its position on the secondary market. The first defection was Tony Conrad, who actually left last November, just after VSP had held an initial fund close. He since has moved on to found a stealth-mode RSS startup, and declined to comment on his reasons for leaving VSP. In late March, sources say that general partner Vince Vannelli submitted his resignation, after being with the firm since 2002. Vannelli tells PE Week that, as of today, he still is working with VSP, but declined to confirm or deny the resignation report.

All of this must be unsettling to limited partners who just bought into the firm, particularly since the new fund has only called down a small amount of capital to back three, stealth-mode plays (an instant-messaging enhancement startup, a marketing services company and a next-generation search company). That isn’t to say that VSP can’t, or won’t, rebound, but it would be a tough road ahead. The complete story can be found at

IDG Ventures Boston, on the other hand, is popping champagne corks this week. The firm closed out its oversubscribed fund with $180 million, despite a cover price of just $150 million. Participating limited partners include Princeton University, AlpInv*st Partners, Flag Capital Management, GIC, Grove Street Advisors and HighVista Strategies. IDG also participated, but does not have a majority position.

What makes this fund-raising so impressive is that the entire process basically went according to a plan that IDG Boston’s Michael Greeley and Chip Hazard laid out to me during a lunch meeting nearly three years ago (I believe I had my favored steak and tomato salad w/ blue cheese). They would first build up the office’s portfolio and reputation through a $100 million commitment from IDG, add some staff and then would hopefully solicit outside capital in 2004 or 2005. So far IDG Ventures Boston has ten portfolio companies without a single write-off (two more will be added from the original IDG-sponsored fund before deploying new fund capital), it hired Jeff Bussgang as a general partner in early 2003 (it is in the market for a fourth GP) and has become the first IDG-affiliated VC group to raise outside capital (IDG West Coast is currently in fund-raising mode). Mission accomplished.

Unrelated #1: Great piece on PR firm retention vis-a-vis startups and VCs by Sarah Lacy of Businessweek.

Unrelated #2: Apologies if you’ve sent me an email and I haven’t responded this week. I’ve been stuck in meetings, and simply have virtual stacks of unopened messages. If you left me a voice mail, the situation is even worse. I’ll get back to you early next week.

    Top Three


Warner Music Group Corp., a New York-based recording company, priced 32.6 million common shares at $17 per share, for a total IPO take of approximately $554.2 million. It originally had filed to raise upwards of $750 million, with an offering price range of $22-$24 per share. Warner Music was sold last year by Time Warner Inc. (NYSE: TWX) in a $2.6 billion buyout that included Thomas H. Lee Partners, Bain Capital, Providence Equity Partners and Edgar Bronfman‘s Music Capital Partners.

IDG Ventures Boston has closed its second fund with $180 million in limited partner commitments. It is the group’s first fund to not be backed solely by International Data Group.

TriQuint Semiconductor Inc. (Nasdaq: TQNT) has sold its optoelectronics operations in Pennsylvania and Matamaros, Mexico to CyOptics Inc., a Lehigh, Pa.-based supplier of high-speed optical chips and components for broadband communications solutions. The deal was valued at approximately $23.5 million, comprised of cash, equity and seller financing. In related news, CyOptics has raised $24 million in a Series F funding round that included $16.5 million of equity and $7.5 million of d*bt. Equity participants included JVP (Jerusalem Venture Partners), Sprout Group, TowerBrook Capital Partners and Eurofund.

    VC Deals

Cellerant Therapeutics Inc., a Palo Alto, Calif.-based developer of blood-forming stem cell-based therapies for cancer, genetic blood disorders and autoimmune diseases, has raised $16 million in Series B funding. Novel Bioventures led the deal, and was joined by George Rathmann, CX Venture Group and return backers Allen & Co. and MPM Capital.

Black Hat Systems Inc., a Tewksbury, Mass.-based communications services deployment, management and transport solutions, has raised approximately $8 million in Series A funding, according to a regulatory filing. Participants included North Bridge Venture Partners and Fidelity Ventures.

Ping Identity Corp., a Denver-based provider of federated identity solutions, has raised $7.5 million in Series B funding. Draper Fisher Jurvetson led the deal, and was joined by return backers General Catalyst Partners and Fidelity Ventures.

Oryxe Energy International, an Irvine, Calif.-based developer of additive technologies that reduce toxic emissions from fossil fuels, has received an equity inv*stment from DSM Venturing, the corporate VC unit of Dutch chemicals company DSM.

Arcot Systems Inc., a Sunnyvale, Calif.-based provider of online authentication and identity management solutions, has raised $11 million in Series A Prime funding. New backers Adobe Ventures and Invesco Private Capital were joined by existing shareholders Accel Partners, Goldman Sachs, Onset Ventures, Raza Ventures, Skandinaviska Enskilda Banken and Wachovia Strategic Ventures. The company has raised over $67 million in total VC funding since its 1997 inception.

OmniPerception Ltd., a UK-based computer vision and biometrics company, has received an undisclosed amount of VC funding from Pentech Ventures and Iris Capital.

    Buyout Deals

Advent International has acquired Making Memories, a Centerville, Utah-based supplier of craft products to retailers and distributors. The selling party is Salt Lake City-based Peterson Partners, with company management retaining an equity position. No deal terms were disclosed. This is the final deal out of Advent International’s fourth fund, as the Boston-based firm recently closed on 2.5 billion euros for its fifth fund.

Point Lookout Capital Partners has acquired a majority interest in Combined Systems Inc., a Jamestown, Pa.-based developer of “less lethal” munitions for the defense and law enforcement industries. Carlyle Mezzanine Partners provided mezzanine financing for the deal, and also made a minority equity infusion. No pricing details were disclosed.

GTCR Golder-Rauner has sold Ft. Washington, Pa.-based Genpass Inc. to U.S. Bank, a subsidiary of U.S. Bancorp (NYSE: USB). Genpass was formed in July 2000 by GTCR and company management to acquire the ATM business of Affiliated Computer Services Inc. It is currently the second-largest ATM processor in the U.S. No financial terms were disclosed on the sale to U.S. Bank, which saw Citigroup Global Markets serve as financial advisor to Genpass.

Fortress Capital Group is in advanced talks to acquire Northbrook, Ill.-based newspaper publisher Liberty Group Publishing Inc. from Leonard Green & Partners, according to The Wall Street Journal. The deal would be valued at $530 million.

The Carlyle Group and Eurazeo are considering a sale of French tile and brick maker Terreal, according to Les Echos.

Carlyle Japan Partners has agreed to sell Japanese medical device company Colin Medical Technology Co. to Omron Corp. for an undisclosed amount.

    PE-Backed IPOs

New Skies Satellites Holdings Ltd. (NYSE: NSE), a Bermuda-based communications satellite operator, closed its first day of trading up slightly at $16.58 per share. The company had priced its IPO at $16.50 per share, and traded as high as $16.97 per share during yesterday’s session. It was acquired late last year by The Blackstone Group, which did not sell any shares during the IPO.

CryoCor Inc., a San Diego-based maker of a catheter system for cardiac arrhythmias, has set its proposed IPO terms to 2.85 million common shares being offered at between $10 and $14 per share. The offering will be led by W.R. Hambrecht, which will use its Open IPO distribution method. CryoCor has raised $46.5 million in total VC funding since being spun out of CryoGen in 2000, including a $27.5 million Series D round in 2003. Significant shareholders include MPM Capital, Healthcare Equity Partners, OrbiMed Advisors and William Blair Capital Partners.

Suzlon Energy Ltd., an India-based wind power company, is planning to raise upwards of 10 billion rupes ($230 million) via an IPO. Citigroup Venture Capital and ChrysCapital are significant shareholders in Suzlon.

    PE-Backed M&A

Novell Inc. (NYSE: NVL) has acquired Immunix Inc., a Portland, Ore.-based provider of host-based application security solutions for Linux. No financial terms were disclosed. Immunix raised $5.3 million in Series A funding in 2003 from ArrowPath Venture Capital and Garage Technology Ventures.

Metavante Corp., a Milwaukee-based financial technology subsidiary of Marshall & Ilsley Corp. (NYSE: MI), has agreed to acquire Med-i-Bank Inc., a Waltham, Mass.-based provider of electronic payment services for employee benefit and consumer-directed health care accounts. The deal is valued at $145 million, including $138 million worth of M&I common stock. Med-i-Bank is a portfolio company of Wind Point Partners.

Epipeline Inc., a Herndon, Va.-based provider of federal contracting research and business intelligence, has acquired B2Gsource Inc., an Austin, Texas-based provider of state and local government contracting opportunities. No financial terms were disclosed. Epipeline is backed by Crossbow Ventures.

National Healthcare Staffing LLC has acquired TVL Healthcare, an Atlanta-based division of United Emergency Services Inc. The deal was financed with equity capital from the Goldman Sachs Urban Inv*stment Group, which made an initial investment in National Healthcare last month.

    Firm & Fund News

Golub Capital has closed its fourth mezzanine fund with $800 million in limited partner commitments.